History of the Model and Reasons for Implementation
Denmark, Finland, Norway, Iceland, and Sweden (collectively known as the Nordic Economies) have a union of both low levels of financial corruption and high levels of economic freedom that has caught the world’s attention. In a world where poverty reduction, anti-corruption, and redistribution of wealth have become very important political issues, many look to this region as both a source of inspiration and as a model for the future. Following the devastation of WWII and the polarization of global politics under the capitalist and communist banners, Scandinavia did not commit to any one system. Rather, after WWII, the Nordic nations initiated an economic renaissance that combined the positive aspects of both socialism and capitalism, Scandinavian nations recognized that both forms of economic organization were not entirely antagonistic and that the welfare policies and social safety net of socialism and the competitive and innovative spirit of the free market could be synthesized. Many agree that this unique synthesis the Nordic model provides has contributed to the higher levels economic equality and high standards of living that have characterized the region.
Analysis of Positive Impacts
The Nordic Model is characterized by a unique combination of capitalism and social benefits that result in nations that are afforded with world class government services (e.g., free education, employment resources, universal healthcare, etc.). The social services provided by the Nordic nations are well known for their extensiveness and generosity.
The tax code of the Nordic economies has lauded by many analysts. The Scandinavian tax structure is mainly focused on individual income combined with a standard flat-tax. As a result, a system is created that treats all citizens equally and encourages both worker participation and productivity. In addition to this, most citizens do not mind having to pay higher taxes as they have a tremendous amount of faith in their government and trust that public funds are used productively. This comes as no surprise as Scandinavian nations possess some of the lowest levels of corruption in the world. All five Nordic countries were ranked among the 12 least corrupt of 176 evaluated countries.
Given the tremendous levels of transparency and trust within the government, the public sector is extremely active and works to reduce the gap between the rich and the poor through redistributive taxation and government spending programs. Government money is also used to strengthen social insurance programs and wages. In many Nordic nations, the wage-based unemployment benefits are extremely high especially in Denmark and Sweden. In accordance with their economic progressivism, the unemployed of the Nordic Nations population were able to receive numerous benefits that far surpassed those of any other developed country
In addition to their strong social welfare measures, the Nordic Nations do value economic individualism and liberalism. According to the OECD, Nordic countries rank very highly in product market freedom, surpassing most developed states in the Economic Freedom Index. the Nordic nations have implemented certain laissez faire policies when comes to government regulations concerning the free market. For example, every Nordic nation has a corporate tax rate than is significantly lower than that of the United States. Corporate income in the United States is taxed at 39.3 percent, while the tax rate in Nordic nations tends to not exceed beyond 28%, thus making Scandinavia a business friendly zone. However, Nordic nations have put into place a strong system in the work place that aims to prevent the abuses that might be found in the free market. The Nordic labor system has been set up in such a way where Partners within firms negotiate the terms to regulating the workplace among themselves, rather than being governed by some law. The Nordic nations, with regard to their labor policies, have followed a form social corporatism where there exists a social partnership that takes into account the goals and interests of management and balances them with the concerns of labor.
Analysis of Criticism and Negative Impacts
Despite all of the positive aspects of the model, there are still several distinct shortcomings. Firstly, the taxes required to finance Nordic welfare programs are extremely high. Many Nordic nations raise money for their social programs and maintain low corporate tax rates by levying high taxes on personal income. Indeed, according to the Organization for Economic Development, Denmark tax rate as percent of its GDP is 26.4 percent, Norway (19.7 percent), and Sweden (22.1 percent) . It is no surprise then that for nations like Norway, Sweden, Denmark, and Finland that public spending dwarfs the other components used to calculate GDP.
Another criticism is that the public sectors of these countries are too large. In the Nordic nations, the government is one of the largest (if not the largest) employer of its citizens than any private sector affiliated group. Indeed government employees e.g., school teachers, healthcare professionals, and general bureaucrats) comprise around 30% of the workforce. The bloated public sector of these countries not only employs much of the population, but also provides many expensive and costly benefits for its employees. These costs could lead to high spending deficits and government borrowing. In fact, many economists have labeled the Scandinavian economies as a "debt-crisis waiting to happen."